Burn Houses
There have been posts about all of the phases of looking at a house when it
first comes available, to working through all the trades and what investors do
to make them "good and marketable". There is a lot of information that comes to
bear on making responsible decisions in real estate investment, and the idea is
that over a period of time, you will accumulate enough of this mostly
construction information that you will not make the mistakes that others have in
bringing your investment to market successfully.
This information comes from my background in construction where I worked for
many years as a rehab contractor. It comes from reading a lot of books and
asking an endless string of questions of an equally endless stream of people, It
comes from taking other people's workshops and workshops at the do-it-yourself
centers, and from formal training on college campuses. It also comes from seeing
an average of 25 houses a week in my inpsection business and from talking to
hundreds upon hundreds of fellow investors year after year.
It seems appropriate to bring you the latest news and share the hottest topics
with you. Sometimes there is a special problem that comes up, and that we will
discussed. If rehabbers show a trend towards taking a new direction in their
investment approach, I wnat to bring it to you in these posts. There are a lot
of knots on our collective head from making mistakes in rehabbing. Any
experienced rehabber can show them to you. The knots on the head are from
banging our head against a brick wall to try to get through the wall. These
posts are meant to show you where the door in the wall is, or to suggest that
you consider walking around the end of the wall to get to the other side.
There is a heavily reinforced brick wall that you need to know about. Not only
will it put knots on your head, but it can also fracture your skull if you bang
into it hard enough. That wall is fire jobs.
Fire jobs are houses that have been burned out. Investors get them when the
people who owned them were bought out by the insurance company (if they are
lucky) and just put the remains of the house up for sale as is where is. These
properties can be somewhat seductive to us because at first glance, there is
likely a big spread between what we have to pay for the property and what it
will resell for when it is rehabbed.
This is where the forehead hits the bricks, friends. We think that because we
have done a dozen make ready rehabs that we have enough expertise to do a fire
job. Ain't necessarily so. It is only once we begin the project that we begin to
understand just what a kaleidoscope of complexity that a house can be.
Here's what you need to understand. Burn jobs are way different than rehabs,
They require a different set of skills from the workers, they require building
permits from the municipalities (read Building Permits and Inspections) and they
require management and scheduling skills from the investor that is unlike any
other project. The City will define the scope of work of your project, they will
tell you what your rehab will be. They will tell you how much you will replace
weather you think it all needs replacement or not. It is their rules and there
is no court of appeal.
Workers. The guys you have been using to do your make ready rehabs may not be
able to do the framing necessary to satisfy the City. All of the work must be
permited, which means that a licensed electrician will be installing your light
fixtures and a licensed plumber will be installing your sinks and toilets.
Licensed hands are more expensive than make ready hands, and they are compelled
to do more than the make ready workers do in a lot of instances. They must also
know about such practices as spraying silver paint on smokey attic rafters,
joists and roof decking to make sure the house doesn't smell like a giant ash
tray on rainey days. They must be familiar with the products and procedures used
to clean the sheetrock walls that will be left and repainted. They must be ready
to go in and get all the burned trash and belongings out of the house and go
home most days smelling like they rolled around in the ashes of the house.
The investor must have a knowledge of homebuilding that far exceeds the
requirements of the rehab. He must know the order in which the house is built
and the order in which the inspections must take place. He must know how to
juggle and balance all of the trades working on the house so that one guy does
not show up and then turn around and leave because the job is not ready for him
to work. Incidentally, if you make this mistake, you will find that your
contractor will probably put you on the end of his schedule to come back because
you have wasted his time.
The investor must watch the job like a hawk. He cannot afford the luxury of
coming by the job every two or three days to see how things are going. The
tradesmen can go way wrong in just the course of a day, and by the time they
figure out that your job is not important enough for you to be there, they will
give it the same kind and amount of attention that you do. This means that you
will begin to come by and find that there is only one person on your job besides
you, and he is a kid with a broom that is holdoing his chin up while he is
staring out the window. Frankly, I have only seen two kinds of guys who can
successfully manage a burn jon; one becasue he stayed there on the job all day
long and worked with the contractors, and the other because the guy came by
twice a day and was on the phone to the contractors all the time he was not
there.
The investor also has to ask himself whether he is prepared to put a large
amount of money into rebuilding one house, or if it would make more sense to him
to do two or three make ready rehabs with the funds he has available. With all
of your money in one house, your fortune rises or falls on the sale of that one
house. With the money spread out over more properties, then you spread the risk
around and are able to do a better job of managing cash flow because the cash is
always flowing.
If, after having read all of that, you still want to do a burn job, consider
this; take $5,000 in $100 bills out into your back yard and start a fire in your
bar-b-cue pit with them. This will closely approximate the experience you will
most likely have when you do your first burned out house.
Kevin Smith
Forward Assist Inspections
(713)858-1330
Texas Real Estate License #3234
